Finally, FTC Takes a Stern ‘Tone’ With National Advertisers, Too

Written by William I. Rothbard on Saturday, November 12th, 2011

Forever, it seems, the Federal Trade Commission (FTC) has been socking it to the direct response marketing industry, seizing a company’s (and its owners’) assets before they’ve even had their day in court, installing receivers to shut down the business, and then extracting punitive redress awards in coercive settlements that leave the defendant in financial ruin. Conversely, it has laid nary a hand on members of the more traditional (and in its view, it would seem, more “respectable”) advertising establishment – Fortune 500-type national advertisers – when they were accused of false marketing.

Usually, the FTC would challenge them in the more “gentlemanly” forum of an administrative proceeding, rather than resorting to the ex parte temporary restraining order (TRO)/asset freeze ambush route in federal court they’ve perfected against smaller, weaker DR firms. It then would let them off with a slap on the wrist consent agreement and no monetary penalty whatsoever.
In short, for years the FTC has been applying a double standard in advertising enforcement, severely punishing the little guys in the DR industry, who lacked the financial firepower to defend themselves, and treating the big boys with kid gloves.

To its credit, the current FTC administration has begun to level the enforcement playing field a bit between powerful national advertisers and DR marketers. Cracks in the long-entrenched double standard have begun to appear during the past two years, with actions targeted against large drug makers and retailers like Bayer, Rite Aid, and CVS (as well as Nivea skin care maker Beiersdorf) that actually made them pay six-figure or low seven-figure civil penalties or consumer redress for advertising infractions. Now, finally, it may have been split wide open with the action taken in September against Reebok for allegedly falsely advertising “toning shoes,” which were claimed to provide extra tone and strength to leg and buttock muscles.

In a settlement of the charges brought against Reebok (in federal rather than administrative court, notably, but without a TRO/asset freeze), the FTC not only imposed the normal injunctive prohibitions against future false or unsubstantiated advertising claims, but forced Reebok to pay $25 million, which will be refunded to consumers directly from the FTC or through a court-approved class action lawsuit. Now, $25 million isn’t going to break the back of a company the size of Reebok, in the way that a hefty redress judgment can destroy a smaller DR marketer – especially in an industry that saw toning shoes sales reach $1 billion in 2010. But it is still real money to consumers, who shelled out $60-100 for a pair of the shoes, and represents one of the largest, if not the largest, consumer redress settlements the FTC has ever garnered from a national advertiser.

Whatever the impact of the settlement on Reebok’s bottom line, it is encouraging, and long past due, to see the FTC finally start to take a stern tone with big advertisers, too, and make them – as well as their counterparts in the direct response arena – pay when they cross the line. Hopefully the FTC double standard is dead once and for all.